I posted with this problem last fall but I never found a solution.

The four wheel indicator light seem to have gone into reverse function.
When it is 4X4 the indicator light on the display goes out when not in 4x4 thelight comes on. the transfer case functionscorrectly and 4x4 high and low work correctly has someone else encountered this problem. The dealer is as usual clueless.They can just about change the oil correctly.
I have put 60,000 on this truck in the last six months and other than a brake job no other maintenence issues it now has 164,000 on the clock consistantly get 17.5 to 18 mpg. I some days think driving it is the onlyreason I get up and go to work.

 

I've never had the light switch but for a few hours I spent time tryin to get it to unlock. I think I ended up backing up like 15 times just to get it outa 4x4. Never done it since

 

I'd say its just a fault in wiring for the indicator light. I'd say to check the wires and make sure there are no problems from that standpoint. If its at all like my 2000 there should be two wires and there should be power running to both. What should happen is that when not in 4x4 both wires should be hot, but when engaged one wire will be hot and the other will provide ground to finish the circuit.

My guess is that something is wrong and that ground is being applied when the 4x4 is not on and being taken away when the 4x4 is on. In short, check the wires and the switch for the 4x4.

Hope this helped

 

Any luck with a fix?

 

if it is the manual shift then you have a bad switch, or improperly mounted switch
if it is the electric shift then you have either a bad switch, relay, or improperly mounted switch / relay

 

I was at the dealership getting a free oil change and radator flush and the mechanic went out of his way to tell me he had found an answer.
he felt it was a broken switch on the t-case. It is a manul shift. I just havent looked into finding a price on the switch.

 

Went to the dealer to buy the replacement sensor and they want 70 bucks for it. if any one knows how to get a better price let me know. Also I was under the impression that I had a gear drive T-case but this early 03 has a d271 which is a chain drive. Keep finding things that are different about this 03. seems more like an 02 than an 03.5.

 

Try your local wrecking yards.